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Neiman Marcus Mojo: Store’s Operating Profits Leap in Qtr.

Signaling the continued strength of luxury goods, the Neiman Marcus Group reported another strong quarter, with robust selling at full price.

NEW YORK — The Neiman Marcus Group continues its momentum despite its change of ownership.

The retailer reported a healthy first quarter ended Oct. 29, citing strength in contemporary sportswear, designer apparel and accessories, men’s wear, denim and jewelry.

While there was a drop in net earnings to $55 million against $64.1 million in the year-ago period due to special items, adjusted operating earnings — which the company stressed was a more accurate barometer of its performance — rose to $140 million compared with $125 million in the year-ago quarter, representing a 12 percent rise.

Revenues for the quarter came to $976.4 million compared with $907.9 million in the year-ago period. Comparable-store sales rose 8.4 percent.

“We feel well positioned for the holiday season,” said Burt Tansky, president and chief executive officer of The Neiman Marcus Group, during a conference call. “Our stores look great.”

Neiman’s did report a mediocre November comp sales gain of just 2.8 percent, but Tansky, in response to a question from an analyst, said: “We don’t consider that a problem at this point. We have to see whether that continues.” He noted that coat sales have not been robust.

The specialty store group consisting of Neiman Marcus and Bergdorf Goodman stores reported a rise in revenues to $807 million compared with $737 million in the year-ago period. Sales at the Neiman’s stores rose 8.9 percent, while Bergdorf’s cited a 13.7 percent gain.

Comp sales rose 8 percent for Neiman Marcus stores.

Earlier in the day, Neiman’s stated: “Adjusted operating earnings is a more meaningful representation of the company’s ongoing economic performance, and therefore, [the company] uses adjusted reporting internally to evaluate and manage the operations.”

Stacie Shirley, vice president of finance and treasurer, explained in a phone interview that adjusted earnings exclude costs from the acquisition of the company by Texas Pacific Group and Warburg Pincus LLC last October (for $5.1 billion) and the sale of the Chef’s catalogue in November 2004 to Pike’s Peak Direct Marketing.

Acquisition costs were listed at $23.5 million plus valuation adjustments of $7.8 million and amortization of customer lists and lease commitments of $44.9 million. Due to the catalogue sale, Neiman’s recorded a pretax loss of about $15.3 million in its first quarter of fiscal 2005.

Operating earnings for the 13 weeks were $104 million, against $110 million.

First-quarter operating earnings at Neiman’s and Bergdorf’s combined were $135 million compared with $120 million a year ago, representing a 13 percent gain.

Revenues at Neiman Marcus Direct were essentially flat at $139 million versus $140 million in the previous year. Excluding Chef’s Catalog, revenues increased 10.4 percent in the quarter. Operating earnings were $15 million, versus $11 million in the year-ago period.

NMG also operates Kate Spade, which is struggling, and Laura Mercier. Tansky said Kate Spade is going through a challenging period and reconfiguring the product mix, though he is pleased with the new spring mix.

Although the company is now private, at this point, it plans to continue reporting quarterly results and monthly sales, according to Shirley.

On the conference call, Tansky said the sale of NMG to TPG and Warburg creates “a new capital structure with needed flexibility to allow us to maintain our high operating standards even in difficult economic environments. The capital structure provides a strong foundation of ongoing investment in our business to continue to grow the company.”

Tansky said the 8.4 percent comp-store sales gain is “evidence that our customers continue to respond to our focus on luxury, quality and fashion. This is on top of a very strong 11.4 percent in the prior year. Our merchants have done an outstanding job merchandising the stores and Web site.”

He also cited record productivity, at $591 in sales per square foot for the past 12 months, against $577 a year ago.

With greater full-price selling in the first quarter, gross margin, excluding the impact of purchase accounting adjustments, improved 50 basis points to 42 percent. Operating margin for the specialty stores was 16.8 percent. However, executives acknowledged that markdowns are higher in the company’s second and fourth quarters compared with the first and third.

Tansky said Neiman’s plans to open five stores over the next three years: an 80,000-square-foot unit in Charlotte, N.C., in fall 2006; an 80,000-square-foot unit in Austin, Tex., in spring 2007; two 150,000-square-foot units in Oyster Bay, Long Island, and Natick, Mass., both in fall 2007, and a 120,000-square-foot unit in West Los Angeles in spring 2008.

Since September, Neiman’s has opened two stores, in San Antonio and Boca Raton, Fla.

Tansky said during the call the company has looked at the stores that Federated Department Stores Inc. is disposing due to its acquisition of May Department Stores Co. and has found “no locations of any interest. At this point, there are none for us.” He noted the Boca Raton store is a former unit of Lord & Taylor, which was a May division.

Key remodels are under way at the San Francisco unit, which is adding 60,000 square feet and will become the chain’s largest unit with 250,000 square feet. Also, the Houston Galleria store is adding 15,000 square feet and 50,000 square feet is being added to the Atlanta store. Renovations also continue at Bergdorf’s.

The company lost three fashion directors this year, including Joan Kaner at Neiman’s, Robert Burke at Bergdorf’s and Michael Bastian, the men’s fashion director at Bergdorf’s. “In all cases we will replace these people,” Tansky said, without giving a specific timetable.